Contrasting moves in business conditions and confidence in January, according to the National Australia Bank’s latest survey of the economy.
The NAB’s survey found that business conditions deteriorated in January as the Omicron variant caused COVID-19 cases to reach unprecedented levels, triggering consumer caution and staff shortages.
But business confidence rebounded to positive territory after the December outbreak caused a sharp fall in confidence.
The NAB commented that the rebound in confidence “Signals that, despite the disruption, firms were optimistic that the outbreak would be short-lived, and consistent with this, forward orders remained steady.”
NAB Group Chief Economist Alan Osters said in commentary with the survey results that “are nowhere near as bad as we saw during lockdowns imposed in 2020 and 2021. “While consumers have been cautious, vaccines have provided protection and businesses have also learned to adapt the way they operate through past virus waves.”
In fact business confidence rebounded 15 points (pts) in January to +3 index points after falling to -12 in December. Confidence rose across all industries outside mining, and across all states.
Forward orders were steady at +4 index points, while capital expenditure edged down 3pts to +3. Capacity utilisation rose from 80.7% to 81.6%.
Business conditions dipped 5pts last month, to +3 index points, dropping below their long-run average.
All three components of conditions deteriorated, with large falls in profitability (down 8pts to +2 index points) and trading conditions (down 7pts to +7). Employment also fell (down 3pts to -1).
So far as conditions are concerned, the negatives stacked up pretty high in the survey.
“Profitability, trading conditions, and employment all fell, with the impact felt across almost all states and industries. Recreation & personal services continues to be hardest hit but retail, transport, and construction all saw large negative impacts,” the NAB said.
The survey also pointed out that there was a positive from a rise in capacity utilisation which was driven by manufacturing, transport, and wholesale (and generally suggests rising orders and therefore business confidence).
But cost pressures “remained elevated, with purchase cost growth reaching a record 3.4% in quarterly terms. Strong wage bill growth continued while on the output side, final product price inflation remained elevated, although retail price inflation eased somewhat,” The nAB survey showed.
“With case numbers appearing to have peaked in late January, some staffing constraints should ease and conditions should improve in in the coming months, but uncertainty remains about how quickly wider supply chain issues will be resolved.
Mr Oster said that inflationary pressures persisted.
“In quarterly terms, purchase cost growth rose to a record 3.4% in January, while labour cost growth remained elevated at 1.9%. Final product prices also remained elevated, but retail price inflation eased somewhat, from 2.0% to 1.3% in quarterly terms.
“Purchase costs growth kept rising in January, reaching record highs in quarterly terms, reflecting ongoing challenges in the supply chain,” said Mr Oster. “Retail price growth eased somewhat, but it is nonetheless clear that the economy is facing a period of elevated inflation while supply chain issues remain unresolved.”
“Overall, the January survey shows significant disruption to business activity from the spread of the Omicron variant, albeit impacts on businesses were less severe than in past outbreaks,” said Mr Oster. “However, we continue to expect a strong recovery as case numbers come down.”
